INDIRECT TAX

A PROJECT REPORT ON

MAHARASHTRA VALUE ADDED TAX

SERVICE TAX

SUBMITTED BY

KSHAMA ACHAREKAR

ROLL NO: 01

M.COM. SEM- IV

(INDIRECT TAX)

ACADEMIC YEAR: 2016-17

UNDER THE GUIDANCE OF PROJECT GUIDE

PROF.NITIN KADAM

SUBMITTED TO UNIVERSITY OF MUMBAI,

V.K MENON COLLEGE OF COMMERCE AND SCIENCE

BHANDUP (EAST) MUMBAI - 400042

1
 INDIRECT TAX

CERTIFICATE

I, Prof. NITIN KADAM, Hereby Certify That KSHAMA ACHAREKAR. Of

V.K. MENON COLLEGE COMMERCE AND SCIENCE, BHANDUP
(EAST), Mumbai -400042 of m.Com Part II (Indirect TAX) Has
Completed Her Project On
Maharashtra Value Added Tax
Service Tax

During The Academic Year 2016-17 The Information Submitted Is True And
Original To The Best Of My Knowledge.

____________________ ___________________

Project Guide External guide

_____________________ ___________________

Co-coordinator Principal

2
 INDIRECT TAX

DECLARATION FROM THE

STUDENT

I KSHAMA ACHAREKAR . ROLL NO 01, Student of V.K. MENON College

Of Commerce and Science, Bhandup (EAST) Mumbai 400042, studying in

M.Com Part- II hereby declare that I have completed the project on

INDIRECT TAX under the guidance of project guide Prof. NITIN KADAM

during the academic year 2016-17. The information submitted is true to the

best of my knowledge.

Date: Signature

Place: Bhandup

3
 INDIRECT TAX

ACKNOWLEDGEMENT

I would like to express my sincere gratitude to Principal of V.K.Krishna

Menon College of Bhandup,(Ms Saroj Phednis) and our project guide

Prof. NITIN KADAM. for providing me an opportunity to do my project

work on INDIRECT TAX .. I also wish to express my sincere

gratitude to the non - teaching staff of our college. I sincerely thank

to all of them in helping me to carrying out this project work. Last but

not the least, I wish to avail myself of this opportunity, to express a

sense of gratitude and love to my friends and my beloved parents

for their mutual support, strength, help and for everything.

PLACE: BHANDUP DATE :

4
 INDIRECT TAX

Contents
Maharashtra Value Added Tax Act 2002
INTRODUCTION
REGISTRATION
VAT SET-OFF

VAT COMPOSITION SCHEME

PROCEDURE FOR THE APPLICATION OF VAT REFUND

APPLICATION IN MAHARASHTRA

Service Tax

VALUATION OF TAXABLE SERVICES

Bibliography

5
 INDIRECT TAX

Chapter-1

INTRODUCTION

WHAT IS VALUE ADDED TAX (VAT) ?

VAT (Value Added Tax) is a multistage tax system for collection of sales tax. The
system envisages levy of tax on the sale at each stage and contemplates allowing of
set off of tax paid on purchases. Thus, tax is getting paid on the value addition in
the hands of each intermediately vendor. Through the whole chain, State collects

6
 INDIRECT TAX

tax on actual consumer price. The process covers whole chain of distribution i.e.
from manufacturers till retailers. Prior to 1-4-2005, the system for levy of tax in
Maharashtra was, in general, single point tax system. As a consequence to national
consensus for introduction of VAT, the earlier Bombay Sales Tax Act, 1959 is
replaced by Maharashtra Value Added Tax Act, 2002. The Act has come into force
with effect from 01/04/2005. Thus, from 1-4-2005, sales tax is being collected
under VAT system in Maharashtra. Salient features of this Act are mentioned
hereunder:

Definitions

Section 2 gives definitions of various terms. The definitions are almost at par with
earlier law i.e. Bombay Sales Tax Act, 1959. Some of the important definitions:

Section 2 (4) Business The definition of Business includes in its scope any
service, trade, commerce, manufacture or any adventure or concern in the nature of
such service, trade, commerce or manufacture, whether carried on with or without
profit motive and whether actual profit is earned or not. Further, it also includes
any transaction which is incidental or ancillary to such trade, commerce,
manufacture, adventure, concern or service and also includes any transaction
which is incidental or ancillary to commencement or closure of such trade,
commerce, manufacture, service etc. The purchase of any goods, the price of which
is debited to business is also be deemed to be the purchase effected in the course of
business. Similarly sale of any goods, the proceeds of which are credited to the
business is also deemed to be the sale effected in the course of business. Though
service is also included in the definition of business, as per Section 2(27) only
notified services are to be included in the scope of the definition. As on today no

7
 INDIRECT TAX

such services are notified and as such at present no service gets covered under the
definition of business.

Section 2(12) Goods means every kind of movable property. The definition
specifically includes live stocks, growing crop, grass and tree, plants including
produce thereof under given circumstances. However, it excludes newspapers,
money, stocks, shares, securities, lottery tickets and actionable claims.

Section 2(30) Tax free goods Tax free goods means the goods against which
rate of sales is shown to be Nil in the Schedule and Taxable goods means goods
other than tax free goods. This means all goods at present covered by schedule A
are tax free.

Section 2(8) - Dealer - Definition of Dealer includes any person who buys or
sells goods in the state for commission, remuneration or otherwise. It also includes,
among others, by an Explaination, public charitable trust, government departments,
societies, State Government, Central Government, shipping companies, airlines,
advertising agencies etc.

Section 2 (13) - Importer means a dealer who brings any goods into the State or
to whom any goods are dispatched from outside the state, which will include
import out of India also.

Section 2 (24) Sale - Sale means a sale of goods made within the State for
cash or deferred payment or other valuable consideration but does not include a
mortgage, hypothecation, charge or pledge. Ordinarily sale means transfer of
property to buyer in goods for cash or deferred payment or other valuable
consideration. A sale within the State includes a sale determined to be inside the
State in accordance with the principles formulated in Section 4 of the Central Sales

8
 INDIRECT TAX

Tax Act, 1956. Following types of transactions are also included in definition of
sale.

(i) the transfer of property in any goods, otherwise than in pursuance of a

contract, for cash, deferred payment or other valuable consideration;
(ii) (ii) the transfer of property in goods (whether as goods or in some other
form) involved in the execution of a works contract including an
agreement for carrying out for cash, deferred payment or other valuable
consideration, the building, construction, manufacture, processing,
fabrication, erection, installation, fitting out, improvement, modification,
repair or commissioning of any movable or immovable property; (known
as works contract transactions)
(iii) a delivery of goods on hire-purchase or any system of payment by
instalments;
(iv) (iv) the transfer of the right to use any goods or any purpose (whether or
not for a specified period) for cash, deferred payment or other valuable
consideration; (known as lease transactions)
(v) (v) the supply of goods by any association or body of persons
incorporated or not, to a member thereof for valuable consideration;
(vi) (vi) the supply, by way of or as part of any service or in any other manner
whatsoever, of goods, being food or any other article for human
consumption or any drink (whether or not intoxicating), where such
supply or service is made or given for cash, deferred payment or other
valuable consideration:

Section 2(25) Sale Price - Sale price is defined to mean an amount

received/ receivable for any sale including any sum charged by seller in
respect of the goods at the time of or before delivery thereof. The amount
of duties levied or leviable on goods under the Central Excise Act, 1944

9
 INDIRECT TAX

or the Customs Act, 1962 or the Bombay Prohibition Act, 1949, shall be
deemed to be part of the sale price of such goods, whether such duties are
paid or payable by or on behalf of, the seller or the purchaser or any other
person. However, the definition excludes the cost of insurance for transit
or of installation, when such cost is separately charged. Sales tax, if any,
charged separately shall not form part of sale price. Generally, freight and
octroi will be part of sale price if the sale is door delivery contract. If the
same is ex sellers place and the above expenses are received as
reimbursement or as per the separate contract for rendering services, then
it will not form part of sale price. The issue for discussion is whether
amount of service tax charged separately in sales invoice in case of works
contract transaction will form part of Sale Price or not. The
Maharashtra Sales Tax Tribunal in case of M/s. Nikhil Comfort (S. A.
No. 3 of 2010 dated 31/03/2012 held that service tax amount forms a part
of sales price. The assessee filed an appeal before the Bombay High
Court against the judgment of Tribunal.

Discount - The discount will be deductible as per the legal position

interpreted so far i.e. if discount agreed before sale, the same is
allowable, otherwise not.

II. Registration Section 3 of the Act

10
 INDIRECT TAX

CHAPTER-2
Registration
Section 3 of the Act provides for turnover limits for liability to pay tax as well as
for registration. The registration number, which used to be referred to as
Registration Certification No. (R.C. No.) has been changed to TIN (Tax Payers
Identification Number) and hence the R.C. No. is now referred to as VAT TIN. This
change is effective from 1.4.2006. The limits for registration are as under:

Sr. No. Category of Total turnover of Turnover of sale

Dealer sales to exceed or purchases of
taxable goods

1 Importer: ` 1,00,000/- Not less than `

10,000/-

2 Others (Including 10,00,000/- Not less than `

manufacturer, 10,000/-
reseller, liquor
dealer, works
contractors, lessors
etc.)

3 Voluntary - - NA- - NA-

Registration
Notes:

11
 INDIRECT TAX

(i) Reference to turnover of ` 1,00,000 or ` 10,00,000 is with respect to sales

only. Sales will include sales of both, tax-free goods as well as taxable
goods.
(ii)No turnover limit for import is specified for importer. Even an import of Re.
1 is sufficient to treat the dealer as an importer.

(iii) The dealer who is liable to pay tax is required to apply for registration
under the Act within 30 days from the date on which prescribed limit of
turnover exceeds. In case of change in ownership or constitution, an
application for new registration certificate (TIN certificate) is to be made
within 30 days from the date of such change. In case of death of a dealer, an
application for new registration for transfer or succession of business can be
made within 60 days from the date of death of dealer. If application for TIN
is made within the time as mentioned above, then registration certificate will
be granted from the date of liability, otherwise from the date of application.
One TIN number will be issued for the whole state of Maharashtra, which
will cover all the places of business of the dealer in Maharashtra. The VAT
TIN may be given retrospective effect by the concerned Joint Commissioner
of Sales Tax on making separate application for Administrative Relief.
(Refer Circular No. 33T of 2007 dated 18th April, 2007 and 36T of 2009
dated 24th December, 2009 issued by Commissioner of Sales Tax).

(iv) The dealer can also apply for voluntary registration by paying
registration fees of ` 5,000/-. Registration certificate in such case will be
granted with effect from the date of application. Apart from registration fee
of ` 5000/- , a dealer is also required to deposit `. 25,000/-. With effect from

12
 INDIRECT TAX

1st May, 2011, it has been provided in Section 16(2A) that this deposit is in
the nature of security deposit and cannot be adjusted against the tax liability.
However, this security deposit will be refundable. As per Rule 60A, a person
or dealer will have to make an application to registering authority for refund
of security deposit after 36 months but before 48 months from the end of the
month containing date of effect of registration certificate. In case of
cancellation of registration certificate within 36 months, an application for
refund of deposit will have to be filed within 6 months from the date of
service of cancellation order. If application is not filed within the prescribed
time limit, then deposit will be forfeited. Subject to above, if all the returns
are filed and all taxes are paid then the registration officer will refund the
deposit within 90 days from the date of application.

(v) The application for registration (VAT TIN) is to be made in Form No.101
and in Form A for C.S.T TIN.

CHAPTER-3

13
 INDIRECT TAX

VAT SET-OFF
Audit Report Requirements
Further, MVAT Auditor has to mention the difference in set-off
claimed and set-off as per audit.

He is also required to report the difference between the final tax

liability as per return and final tax liability as per audit.

Set-off ultimately affects the final tax liability of the dealer

PENAL PROVISIONS

Section 29 (3) If dealer knowingly claimed set-offin excess

of what is due to him penalty equal to amount of tax due.

Section 29(4) If dealer knowingly issued any false

document on the basis of which incorrect set off is claimed -
penalty equal to amount of tax due.

14
 INDIRECT TAX

Section 30(4): Additional Interest @25% on additional tax

liability.

Rule 90 If dealer has made breach of any of the rules

(including set-off rules), penalty.

RELATED SECTIONS AND

RULES
Section 48 Conditions for set-off.
Section 50 Adjustment of excess amount.
Rule 52 Tax amount eligible for Set-off.
Rule 53 Reduction of Set-off.
Rule 54 Non-admissibility of Set-off.
Rule 55 Conditions for grant of Set-off.
Rule 79 Cases for Refund of Set-off to PSI.

VAT SET-OFF (Section 48)

CONDITONS FOR CLAIMING SET-OFF
Claimant dealer should obtain Tax Invoice from the
selling dealer.

15
 INDIRECT TAX

Such Tax invoice should contain the certificate signed

by selling dealer, containing that, his registration
certificate was in force as on the date of sale by him
and he has paid or he shall pay the tax due if any.
In no case, set-off shall exceed the amount of tax in
respect of the same goods actually paid or deferred.

VAT SET-OFF AMOUNT ELIGIBLE FOR SET-

OFF(Rule 52)

tax paid on capital goods or

tax paid on goods the purchases of which are debited to
profit & loss account or
tax paid on goods the purchases of which are debited to the
trading account or tax paid under Maharashtra tax on the
entry of Motor Vehicles into Local Areas Act, 1987 and
tax paid under Maharashtra tax on the entry of goods into
Local Areas Act, 2003 e.g. Tiles, Air conditioners ,etc.

ADJUSTMENT OF SET-OFF WITH TAX PAYABLE

As per Rule 55 (3), claimant dealer can adjust set-

off amount,

16
 INDIRECT TAX

against the tax payable under VAT Act or

against the tax payable under CST Act or
against the tax payable under the Maharashtra Tax on Entry
ofGoods into Local Areas Act, 2003

and after adjustment of set-off if there is any excess, then the

dealer may claim refund of excess or part of excess or may carry
forward the same for subsequent period in the same year to set-
off against above taxes.

ISSUE

But as per Section 50 (2), dealer may adjust excess refund against any
return for any period contained in year whereas as per rule 55, dealer
may adjust only against subsequent period. Under such overriding
provisions, Section will prevail over rules. Further, a dealer has to be
interpreted the provisions which are more beneficial to him.

Setoff- Issues-TIN no and URD dealer

TIN No. of Parties needs to be mentioned on Invoice. If not, a

technical default, no effect on setoff. (rule 89 read with section 48
(5)).
17
 INDIRECT TAX

For URD dealer setoff allowable only for the purchase made in the
F.Y. in which he gets registered. However Administrative relief can
be made for the other years. (rule 55)

Setoff- Issues- Fuel- tax free-branch transfer

ratio

U/r 53(1)- No definition of fuel? Retention of 3%. In

common parlancematerial used to generating any
source of energy, heating, boiling, etc. is fuel.

U/r 53(2), (3)(4)- retention of 2% on manufacturing or

resale of tax free goods or branch transfer on
Corresponding goods.

18
 INDIRECT TAX

CHAPTER-3
VAT Composition Scheme
The tax system in India is unnecessarily complicated. Absolutely true. It
requires the assessee to pay monthly, there are returns to be filed, and the rates
keep changing. But there are also some convenient schemes under which you can
escape all this. The Composition Scheme is one such scheme, applicable to all
traders in India with a turnover of between Rs. 10 lakh and Rs. 50 lakh.

VAT Composition Scheme Eligibility

1. You should have a TIN.

2. You should have a turnover of Rs. 10 lakh to Rs. 50 lakh in the past year.
3. All your purchases and sales must be within the same state. Therefore, if even a
part of your turnover is from sales to another state or through export, you are not
eligible.
4. You may not purchase any goods from a wholesaler/dealer that has already opted
for the Composition Scheme.

Why to Opt for Composition Scheme?

Maintaining records, making payments and filing returns is a costly and

cumbersome process that may just be asking too much from a small dealer trying
to grow a business. For this reason, the Composition Scheme provides a range of
benefits to reduce the statutory requirements.

19
 INDIRECT TAX

Instead, you pay a fixed rate of tax that is lower than what others would pay, you
are not required to file monthly forms and can instead opt for a form that covers a
quarter or even a year, depending on the business youre in. You may wonder why,
of course, the government would offer such a scheme. The simple answer is that, in
its absence, many small-time traders would not bother registering at all.

No Input Tax Credit

VAT is collected at every step of the trading process. Lets say wholesaler A sells to
dealer B stock worth Rs. 1 lakh. On this amount, dealer B pays VAT of say Rs.
4000. Then dealer B sells to trader C for Rs. 1.2 lakh. Trader C now pays VAT of
Rs. 5000. Under the normal system, when trader C sells the goods, for say Rs. 2
lakh, he can collect VAT of Rs. 8000, but must only pay Rs. 3000 to the
government (as Rs. 5000 has already been paid to dealer B).

This is known as Input Tax Credit. Under the composition scheme, this is not
possible; the entire amount must be paid. After an examination, the money will be
returned. For this reason, traders that are purchasing from dealers or wholesalers
opt against the composition scheme.

20
 INDIRECT TAX

CHAPTER-4
Procedure for the application
of vat refund application in
Maharashtra
In this we will discuss how to fill the Form 501,After downloading the form 501,
now open the form. It is in excel format. It contain total six sheets which are as
following:

Errors sheet
Form 501 sheet
Annexure A
Annexure B
Annexure C
Annexure D

Now we will discuss all one by one.

Error sheet:

After filling the form 501 click on validate sheet option on upper side of each
sheet, if it contains errors then such errors are shown in this sheet (error sheet).

Form 501 Sheet:

21
 INDIRECT TAX

In this sheet you to fill the basic details like name of dealer, MVAT Tin, CST Tin
no., Address of place of business, Details of Bank account in which refund is
sought, refund amount, period for which refund is made, Name of authorized
person with contact details, place & other details.

Annexure A:

In this annexure you to fill the details relating to all the vat purchase made during
the refund period. For e.g. if you are claiming the vat refund for period 2014-15
then you have to enter the vat purchase details relating to period 2014-15. This
sheet contains seven columns i.e. Sr. No., Tax invoice/ credit note/debit note no.,
Tax invoice/ credit note/debit note date, TIN of supplier, Net taxable amount,
Input Vat amount, Gross total.This annexure is same as J-2 sheet in VAT audit
report form 704.

Annexure B:

This annexure is automatically generated annexure. This is a type of application

form. In this you to select Applicable refund scheme from four options i.e. Fast
track refund scheme, Exporters refund scheme, Part refund scheme for annual
refunds, General refund schemes.

Annexure C:

This annexure is same as Annexure I in Vat audit report form 704. In this annexure
you to fill the details relating to all the certificates (C Form, F Form, H Form etc.)
which are not received up to the date of vat refund application made (Form 501).
It Contain eleven columns i.e. Sr no., Name of the dealer who has not issued
declaration or certificates, CST tin if any, Declaration or certificate type, Invoice
no., Invoice date, Taxable amount, Tax amount, rate of tax applicable (local rate),

22
 INDIRECT TAX

Amount of tax on applying the local rate tax rate, Differential tax liability (Tax by
local rate tax by CST rate). Only difference between this annexure & the
annexure I in Vat audit report form 704 is that in that annexure you have to enter
the details relating to all the certificates not received up to the date of Vat audit
report Form 704 & in this annexure you have to enter the details relating to all the
certificates not received up to the date of VAT refund application form 501 made.

Annexure D:

This annexure is same as Annexure G & H in Vat audit report form 704. In this
annexure you to fill the details relating to all the certificates (C Form, F Form, H
Form etc.) which are received up to the date of vat refund application made (Form
501). It Contain Nine columns i.e. Sr no., Name of the dealer who has issued
declaration or certificates, CST tin, Declaration or certificate type, Declaration or
certificate no., Invoice No., Invoice date, Taxable amount, Tax amount.Only
difference between this annexure & the annexure G & H in Vat audit report form
704 is that in that annexure you have to enter the details relating to all the
certificates received up to the date of Vat audit report Form 704 & in this annexure
you have to enter the details relating to all the certificates received up to the date of
VAT refund application form 501 made.

23
 INDIRECT TAX

60A. Grant of Refund of Security Deposits

(1) A person or dealer who has obtained the voluntary registration

may make an application to the registering authority for refund
of the amount of Rs. 25,000/- of security deposit.

(2) The application for the refund may be made,-

(a) where the registration certificate is cancelled within the

period thirty-six months from the date of registration, then
within six months from the date of service of the order of
the cancellation of the registration certificate, and

(b) in any other case, after a period of thirty-six months from

the end of the month containing the date of effect of the
registration certificate but before the end of the period of
forty-eight months from the end of the month containing the
said date.

(3) The registering authority shall, within ninety days from the receipt
of the said application, refund the amount of security deposit if the
dealer has,-

24
 INDIRECT TAX

(a) filed all the returns due up to the date of application for refund of
the security deposit, or up to the date of cancellation of
registration certificate, and

(b) paid the tax due as per the said returns, and

(c) made the application for refund within the period prescribed
under sub-rule (2) above.]

25
 INDIRECT TAX

Section- 52. Interest on amount of refund

Where refund of any tax becomes due to a registered dealer, he shall,

subject to rules, if any, be entitled to receive, in addition to the refund,
simple interest at the prescribed rate on the amount of refund for the
period commencing on the date next following the last date of the period
to which the refund relates and ending on the date of the order
sanctioning the refund or for a period of twenty four months, whichever
is less. The interest shall be calculated on the amount of refund due to
the registered dealer in respect of the said period after deducting there
from the amount of penalty, sum forfeited and interest, if any, charged in
respect of the said period and also the amount of refund, if any, adjusted
towards any recovery under this Act or any earlier law or as the case
may be, under the Central Sales Tax Act, 1956. If, as a result of any
order passed under this Act, the amount of such refund is enhanced or
reduced, as the case may be, such interest shall be enhanced or reduced
accordingly. If the interest is reduced, then the amount granted in excess
shall be recovered as if it is an amount payable under this Act. Provided
that, interest under this section shall not be granted towards any refund
granted under section 51.

Explanation. For the purposes of this section, where the refund of tax,
1 whether in full or in part, includes any amount of refund on any
payment of tax made after the date prescribed for making the last

26
 INDIRECT TAX

payment in respect of the said period, then the interest, in so far as it

relates to the refund arising from such payment, shall be calculated from
the date of such payment to the date of such order.

27
 INDIRECT TAX

Section-50. Refund of excess payment

Subject to the other provisions of this Act and the rules made there under,
the Commissioner shall, by order refund to a person amount of tax, penalty,
interest, deposit and fee except when the fee is paid by way of court fee
stamp , if any, paid by such person in excess of the amount due from him.
The refund may be either by deduction of such excess from the amount of
tax, penalty, amount forfeited and interest due, if any, in respect of any other
period or in any other case, by cash payment: (In the above para for the
words the commissioner shall refund the words the Commissioner shall,
by order refund are substituted by the Maharashtra Act No. XXXII of 2006
Dt. 05.08.2006) Provided that, the Commissioner shall first apply such
excess towards the recovery of any amount due in respect of which a notice
under subsection (4) of section 32 has been issued, or, as the case may be.
any amount which is due as per any return or revised return but not paid and
shall then refund the balance, if any. (2) Where any refund is due to any
dealer according to the return or revised return furnished by him for any
period, then subject to the other provisions of 7 this Act including the
provisions regarding provisional refunds such refund may provisionally be
adjusted by him against the tax due and payable as per the returns or revised
return furnished under section 20 for any subsequent period: the word,
subsequent shall be deleted with effect from 20th June 2006. Provided
that, the amount of tax or penalty, interest or sum forfeited or all of them due
from, and payable by, the dealer on the date of such adjustment shall first be
deducted from such refund before making the adjustment. (For the above
subsection (2) the following subsection (2) is substituted by the Maharashtra
Act No. XXXII of 2006 Dt. 05.08.2006

28
 INDIRECT TAX

If a registered dealer has filed any returns, fresh returns or revised returns in
respect of any period contained in any year and any amount is refundable to
the said dealer according to the return, fresh return or revised return, then
subject to rules, the dealer may adjust such refund against the amount due as
per any return, fresh return or revised return for any subsequent period
contained in the said year, filed under this Act or the Central Sales Tax Act,
1956 or the Maharashtra Tax on the Entry of Goods into Local Areas Act,
2002.

CHAPTER-5

29
 INDIRECT TAX

VALUATION OF TAXABLE
SERVICES

Service tax is levied on various taxable services on the basis of value charged by
the service provider. Its valuation is governed by section 67 of the Finance Act,
1994 read with the rules under Service Tax (Determination of Value) Rules, 2006.
A few illustrative cases of short levy of service tax of Rs. 8.16 crore are mentioned
in the following paragraphs. These observations were communicated to the
Ministry through seven draft audit paragraphs. The Ministry/department has
accepted (till January 2010) the audit observations in six draft audit paragraphs
with total revenue implication of Rs. 7.38 crore, of which Rs. 1.66 crore has been
recovered.

30
 INDIRECT TAX

Incorrect adoption of the value of service

Section 67 of the Finance Act, 1994, envisages that the value of taxable
service in relation to commissioning or installation services, is the amount
charged by the service provider for rendering such services. Further,
notifications dated 21 August 2003 and 1 March 2006 provide that, in the
cases of contracts involving provision of services along with supply of
materials, the service provider may pay the service tax on 33 per cent of the
gross contract amount. M/s CMC Ltd., in Kolkata service tax commission
rate, engaged in providing software and hardware solutions, executed jobs of
installation and commissioning along with supply of equipment under
composite price contracts without having any price breakup for supply,
installation and commissioning works. The assessee paid service tax at two
per cent instead of 33 per cent of the gross contract value which was
applicable for installation and commissioning work. Incorrect adoption of
value resulted in short payment of service tax of Rs. 5.62 corer during the
period from 2004-05 to 2007-08. On this being pointed out (May 2008), the
department accepted the audit observation and stated (May 2009) that a draft
show cause cum demand notice was being issued. The reply of the Ministry
has not been received (January 2010).

Value of service adopted not based on sole

consideration

31
 INDIRECT TAX

Section 67(2) of the Finance Act, 1994, read with rule 3(a) of the
Service Tax (Determination of Value) Rules, 2006, effective from 19 April
2004, stipulates that where provision of service is for a consideration not
wholly or partly consisting of money, the value of such taxable service shall
be equivalent to the gross amount charged by the service provider to provide
similar service to any other person in the ordinary course of trade and the
gross amount charged is the sole consideration. M/s Kandla Port Trust
(KPT), Vadinar, in Rajkot commission rate, provided port services to M/s
Essar Oil Ltd. (EOL), in connection withinstallation/creation of various new
ports, related facilities in the KPT water limits and also in land/road area of
KPT at Off-shore Oil Terminal (OOT), Vadinar. M/s EOL paid Rs. 6.68
crore between February 2007 and March 2008 to KPT as wharfage and
berthing charges at 51.43 per cent of the scale of rates (SORs) of KPT for
the products brought by EOL at the Vadinar Terminal. The assessee also paid
service tax of Rs. 82.38 lakh on this amount. Audit observed that payment of
service tax of 51.43 per cent of scale of rates was not correct because the
assessee and EOL had entered into an agreement by virtue of which KPT
had extended its facilities to be used and developed by the EOL and the
developed assets were to be repatriated to KPT free of cost on a future date.
In consideration thereof, the charges leviable were reduced to 51.43 per cent
of the actual scale of rates of KPT. In such cases, the service tax of Rs. 1.60
crore should have been paid on the full service charge of Rs. 12.98 crore
which was chargeable by KPT in normal circumstances from any other
assessee for providing similar services under rule 3 (a) of the aforesaid
Rules. This resulted in short payment of service tax of Rs. 77.87 lakh.
The matter was pointed out to the department/Ministry in August
2008/October 2009; its replies have not been received (January 2010).

32
 INDIRECT TAX

TDS not included in the value of service

Section 67 of the Finance Act, 1994 stipulates that the value of any taxable
service should be the gross amount charged by the service provider. The Director
General of service tax clarified that tax deducted at source (TDS) is includible in
the gross amount charged.

M/s Saint Gobain Glass India Ltd. and M/s Mainetti (India) Pvt. Ltd.,
in Chennai service tax commission rate, engaged in the manufacture of
excisable goods availed of technical know-how from foreignn service
providers. The assessees paid royalty of Rs. 9.29 crore and Rs. 8.95 crore for

33
 INDIRECT TAX

the period from January 2005 to December 2005 and from May 2005 to
December 2005 after deducting the TDS amount of Rs. 1.03 crore and Rs.
1.34 crore respectively. Service tax was paid on the value after excluding
TDS. The exclusion of TDS resulted in short payment of service tax of Rs.
28.82 lakh which was recoverable with interest.

On the above being pointed out (between March and December 2008),
the department admitted the audit observations (between July 2008 and
February 2009) and reported recovery of tax of Rs. 12.64 lakh and interest of
Rs. 5.21 lakh in June and July 2008 from M/s Saint Gobain Glass India Ltd.
and issued show cause notice to the other assessee.
The Ministry accepted (November 2009) the audit observation in the
case of M/s Mainetti (India ) Pvt. Ltd. and intimated that a show cause
notice for Rs. 16.50 lakh had been issued in September 2008.

BIBILOGRAPHY

www.icaiknowledgegateway.org
https://vakilsearch.com
www.cbec.gov.in

34
INDIRECT TAX

35